The lead–lag relationship between the spot and futures markets in China

Abstract

Based on daily and one-minute high-frequency returns, this paper examines the lead–lag dependence between the CSI 300 index spot and futures markets from 2010 to 2014. A nonparametric and non-linear method based on the thermal optimal path method is adopted. Empirical results of the daily data indicate that the lead–lag relationship between the two markets is within one day but this relationship is volatile since neither of the two possible situations (the futures leads or lags behind the spot market) takes a dominant place. Our results using the high-frequency data demonstrate that there is a price discovery in the Chinese futures market: the intraday one-minute futures return leads the cash return by 0–5 min regardless of the price trend of the market.

Keywords:

• Causality
• Lead–lag relationship
• Thermal optimal path
• CSI 300

Acknowledgements

We are grateful to Wei-Xing Zhou for helpful discussions.

Notes

No potential conflict of interest was reported by the authors.

Additional information

Funding

This work is supported by the National Science Foundation of China [grant number 71171083]; Innovation Program of Shanghai Municipal Education Commission [grant number 14ZS058]; Shanghai Pujiang Program [grant number 15PJC021].